Debt Reduction and New Loans: A Contracting Perspective

24 Pages Posted: 15 Feb 2006

See all articles by John A. Carlson

John A. Carlson

Purdue University - Department of Economics

Aasim Husain

International Monetary Fund (IMF) - Research Department

Jeffrey A. Zimmerman

Purdue University - Department of Economics

Date Written: August 1997

Abstract

International debt contracts can incorporateat least implicitlycontingencies governing debt reduction. This paper examines a series of debt contracts that allow for the possibility of rescheduling, forgiveness, and rescheduling with forgiveness. The contract with both rescheduling and forgiveness permits a higher credit ceiling than other types of debt contracts, and contains features found in the HIPC and other recent debt reduction initiatives. If an adverse state of nature occurs, some of the debt is forgiven, a portion is rescheduled, and the remainder is repaid. At the same time, the debtor country is a net recipient of new loans.

Keywords: International Debt, Rescheduling, Forgiveness

JEL Classification: F34

Suggested Citation

Carlson, John A. and Husain, Aasim and Zimmerman, Jeffrey A., Debt Reduction and New Loans: A Contracting Perspective (August 1997). IMF Working Paper No. 97/95, Available at SSRN: https://ssrn.com/abstract=882609

John A. Carlson (Contact Author)

Purdue University - Department of Economics ( email )

Krannert School of Management
West Lafayette, IN 47907-1310
United States

Aasim Husain

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Jeffrey A. Zimmerman

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

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